There are four dangerous fiscal fables afloat. The first is that taxes can be cut to raise revenues and lower the deficit. The second is that spending can be raised to raise revenues and lower the deficit. The third is that the deficit can be financed by printing money with no real consequences. And the fourth, and most dangerous, is that the deficit's accumulated value -- the official debt -- is a meaningful measure of our country's or any country's true indebtedness.

Paul Krugman, who has been pleading for more deficit spending on a continuous basis in his New York Times column, is hawking all four fables. Pity our children if our policymakers continue to take his views seriously.

The Deficit and Reality

Let's start with the worst fable, namely that the debt Krugman is considering is, in fact, the right measure of our government's obligations. The measure Krugman is using is the official debt in the hands of the public, which is $11 trillion. But the true debt, known to economists as the fiscal gap, which includes all the off-the-book obligations of the government, is 20 times larger!

These off-the-book obligations include the requirement, under current law, to pay today's 40 million seniors, on average, $30,000 per year in today's dollars in Social Security, Medicare, and Medicaid benefits through the rest of their days. They include the requirement, under current law, to pay today's 78 million baby boomers, when fully retired, $40,000 per head, in today's dollars, in Social Security, Medicare, and Medicaid benefits. They include the requirement to pay for all future military expenditures, all future welfare benefits, all future Supreme Court Justices salaries, and the list goes on.

Like interest and principal payments on official government debt, these other payments are coming in the future. But of all the expenditures the government is promising explicitly or implicitly to make in the future, only those called "interest and principal payments" are being valued in the present and included in Krugman's measure of government debt.

Perhaps Krugman should sit down with a 75-year-old and ask her whether she thinks the government has an obligation to continue sending her a Social Security check every month or a commitment, under Medicare and Medicaid, to help cover her future healthcare bills. Perhaps he should sit down with an admiral and ask whether the government has an obligation to build new submarines and maintain our fleet over time. Perhaps he should ask the head of the Department of Transportation whether there is a requirement to repair federal highways and build new ones.

Krugman would quickly learn that these debts -- these obligations to spend -- are no less real and, indeed, a lot more real than the official debt. The official debt, after all, can be wiped out in real terms by printing money and raising prices. Not the case for our transfer payments and direct government purchases. They are either formally or informally indexed for inflation. As for the politics of who will get paid in a crunch, it's not the official debt holders. Just ask Greek bond holders how they fared in recent years compared to Greek retirees collecting state pensions.

Paul Krugman is a Nobel Prize winner in economics. He should know the debt is not well defined -- that what's put on the books and what's kept off the books reflects labeling choices by successive Congresses designed to make the official debt as small as possible because, guess what, people like Krugman are writing about the official debt, but not the unofficial debt.

Economists have been discussing this labeling problem and have been producing meaningful fiscal gap measures, that are label-invariant, for 40 years. I wrote a column called Deficit Delusion on this in the Public Interest back in 1984 and one in Science back in 1988. My most recent column is posted on the PBS Newshour site.

Yet Krugman says in his most recent column that "I have yet to see any coherent explanation of why these longer-run concerns should determine budget policy right now." The coherent explanation is given by economic theory, which makes crystal clear that the choice of fiscal labels is economically arbitrary and that, as a consequence, the projected path of the government's short and long-term cash flows is arbitrary, and that, as consequence, economic theory does not distinguish short-run vs. long-run budget policy. What economic theory tells us is to look at the entire projected path of policy, measure its fiscal gap, and decide on the basis of the size of its fiscal gap whether the policy is sustainable.

The equations of our economic models don't define the debt. It's that simple. Nor do the equations in physics define time or distance. In physics, how you measure time and distance is a matter of your frame of reference, which can be viewed as a language or labeling convention.

When I was asked in 1988 by Science to write about economics fiscal relativity problem I was struck that the hard scientists could get this point so quickly and that so many economists could not. But, then again, economists are the tailors of this emperor's new clothes and have a very strong incentive to keep discussing fiscal policy using meaningless measures. Krugman is the chief tailor in this regard.

The U.S. fiscal gap of $222 trillion is enormous and totally unsustainable. But rather than discuss the fiscal gap, Krugman discusses the official debt which is one-twentieth as large and, as indicated, a measure of the government's words, not its policies.

Of course, once you have the emperor convinced that his new clothes are for real, you can take full advantage of his ignorance. Krugman is doing this with his readers. He's taking advantage of their ignorance by showing that a non-measure of government sustainability, intentionally designed to be as small as possible, is not of major concern. And in claiming that the long-run is distinct in terms of policy from the short run and can be ignored until we reach it, he's persuading his readers that they needn't worry about the fiscal Sword of Damocles suspending over our children's heads.

This is fiscal child abuse pure and simple, and Krugman should be ashamed of his contribution to it. There is not a single dynamic model of the economy's dynamic transition being published in leading economics journals that doesn't include the constraint that the fiscal gap be zero. But Krugman simply discards what we academic economists call the government's intertemporal budget constraint.

Let's be clear. Generationally speaking, paying for the government's spending is a zero sum game. Eliminating the fiscal gap -- satisfying the government's intertemporal budget constraint -- requires either a) an immediate and permanent 64 percent hike in all federal taxes or b) an immediate and permanent 35 percent cut in all projected government outlays including those called "interest and principal." If we wait a decade to take our medicine, these figures become 70 percent and 38 percent respectively. And, guess what? In that case, our children will face even higher taxes or lower spending over their precious lives.

These aren't my estimates of the fiscal gap or what's needed to close it. They are my calculations based on the Congressional Budget Office's long-term fiscal forecast called the Alternative Fiscal Scenario. The CBO publishes this forecast in June each year. Last June the fiscal gap was $222 trillion. In June 2011 it was $211 trillion. It rose by $11 trillion between 2011 and 2012, which is the same amount as the entire stock of federal debt! The reason, in large part, is that baby boomers got one year closer to cashing in on all those Social Security, Medicare, and Medicaid payments which they are owed, but which have conveniently been ignored in tallying up federal debt.

Krugman dismisses the terrible zero sum generational game we are playing with our kids. He sees our economy operating at less than full employment and says that if the government spends more on what it labels as purchases or transfer payments the economy will be stimulated, everyone will be hired, and the extra spending covered by the associated extra revenues.

Something for Nothing

This is the second fable -- demand-side voodoo economics -- that more spending will beget more taxes. But it's also the first fable -- supply-side voodoo economics -- that less taxes will beget more taxes. The reason is that cutting someone's taxes is, apart from words, no different that increasing their transfer payments so since Krugman believes that more transfer payments will pay for themselves, he must, perforce, believe tax cuts pay for themselves.

Believing that we can get something for nothing -- that we can, in effect, produce mana from heaven by being more fiscally profligate -- is believing in magic. This is why President Bush, the senior, properly called such fantasies, when they were being espoused by Ronald Reagan, "voodoo economics." And when George Bush, the junior, cut taxes, Krugman routinely skewered him for doing precisely what Krugman is now advocating -- praying for mana.

But let's assume Krugman has it right and that gambling yet further with our children's economic future will restore the economy to full employment. How much of the fiscal gap will go away? Precious little.

Given the recent tax hike and sequester cuts, my guess is that this June's Alternative Fiscal Projection will look better, that the fiscal gap will fall to $200 trillion, and that we'll be short, on an ongoing basis, not 12 percent of GDP, but 11 percent of GDP.

The CBO projection has the economy returning to full employment (defined as 5.5 percent) in 2017.

If we could miraculously and immediately get back to full employment at no net budgetary cost via spending that pays for itself that would mean, at most, 5 percent more GDP for 4 years relative to what the CBO projects will arise. In terms of lowering the fiscal gap, this would contribute perhaps 2 percent in net revenue for four years against the 11 percent in additional net revenue needed in those years. But, and this is key, it would do nothing to come up with the 11 percent of GDP in net revenue needed for every year in the country's future beyond 2017. The point is that we'd still have an absolutely enormous fiscal gap to deal with even if more voodoo finance pays for itself and immediately gets the economy back to its potential GDP.

Earth to Paul Krugman. We've just spent four years experimenting with demand-side and supply-side economics. During this time, the fiscal gap rose by $42 trillion to its current value of $222 trillion. If the fiscal gap in June is $200 trillion, as I predict, its $22 trillion decline won't reflect the healing power of your crude Keynesian voodoo policy, but real tax hikes and spending cuts.

So as a means of achieve fiscal solvency, neither Keynesian demand management nor Reagan supply management is working. Yet Krugman and his partner in economic crime -- Larry Summers -- would say more voodoo medicine is needed. But we gave the patient a very big dose and he didn't respond.

Meanwhile the underlying structural drivers of the long-term fiscal gap were ignored with all attention focused on the "short term." Again, every passing year brings us closer to all 78 million baby boomers receiving their benefits. These projected payments are like zero-coupon bonds. We're not feeling any cash-flow pain from them now, because Congress arranged the payment stream to delay when they come due. But they will come due shortly.

Social Security, Medicare, and Medicaid expenditures are a 35 percent larger share of GDP today than in 2000. President Obama was able to stabilize this growth in his first term, but he didn't reverse it. Meanwhile, the way his healthcare reform was implemented could lead to explosive costs. There is a huge incentive under the Affordable Care Act for employers to shut down their health insurance plans, pay the relatively small penalty, and ship their workers over to the new health exchanges where the vast majority will get very large subsidies. This was one of the few things that Mitt Romney actually got right. But the Congressional Budget Office doesn't have this baked into their projections as far as I know.

Don't Forget About Inflation

The last fable -- fable three -- is that we can pay off our debts, no matter their labeling, simply by printing money. There is, today, a band of very prominent pundits and policymakers, I'll call them the Money Printers, who think the U.S., the UK, the Eurozone, and Japan can safely print tons and tons of money, pay their bills with this paper, and never have to worry about inflation. The ranks of the Money Printers include not just Krugman, but also Fed Chairman Ben Bernanke, FT columnist, Martin Wolf, Adair Turner, head of the UK's Financial Services Authority, the new Prime Minister of Japan, Shinzo Abe, IMF chief Christine LaGuarde, and the list goes on.

But we've seen this movie for five years now, and it's a horror show. Since 2007, the developed world's central banks have roughly tripled the basic amount of money, called the monetary base, that existed in 2007. This has laid the groundwork for a tripling of the price level, i.e., for hyperinflation. Yet the printing presses continue to run at full tilt every second of every minute of every day. Here, again, we have reckless endangerment of our children with no accounting of the generational risks being imposed.

In the last century, 20 countries ended up with hyperinflations by using the printing press to avoid taking fiscal responsibility. Now we have virtually the entire developed world printing money out the wazoo.

Krugman's response is, "Where is the inflation? Where are the high interest rates?"

My answer is give it time. The long history of fiscal and financial crises is that they happen abruptly, at a moment that seems not to matter, but in retrospect it was easy to see that the crisis would eventually materialize.

I'm not a religious person, but this quote from the bible seems apt:

"When I was a child, I talked like a child, I thought like a child, I reasoned like a child. When I became a man, I put the ways of childhood behind me."

The belief in and practice of voodoo economics, extraordinary reliance on the printing press, and the intentional use of deceptive measures of our nation's fiscal obligations is, at its root, childish, selfish, and self-serving behavior by people who don't deserve the title of "adult."

Laurence Kotlikoff is an economist at Boston University and President of Economic Security Planning, Inc. whose company markets Maximize My Social Security and ESPlanner (Economic Security Planner).

For any of the doomsday profecies to come true for the USA, there would need to be some other large economy out there that is doing better, somewhere that people want to put their money instead. There isn't and there won't be. So...relax.

Before or after the real-estate-bubble-burst-induced 2nd People's Revolution?

soundtechie

Eagle Pellet

posted: Mar. 12, 2013 @ 8:40p

I read this, and all I hear in my head is "Wah wah, wahwah wahwah wah..."

The twenty years of obligations are 20 times more than one year's obligations. Bravo sir, your grasp of addition exceeds that of 80% of second graders.

The debt is important - we see this because the "fiscal cliff" is now reality, and being included in all budgets going forward, and the stock market has responded by going *up*. a tighter budget increases people's confidence in the dollar, which makes it easier to borrow in the long term, which yields sunshine and rainbows, and then we all get ice cream for dessert.

calvinandhobbes

Thrifty Member

posted: Mar. 12, 2013 @ 8:42p

It's easy to make 200+ trillion dollars scary (a number that is a sum of decades of spending estimates) when you don't put it in contrast to decades of tax revenues. There are some points to be had from the editorial, but for the most part, I'm not overly impressed. It's funny how people dismiss the idea of the Laffer Curve (ie, the idea that lowering taxes can raise revenue) rather than arguing where on the curve we are. The curve is absolute common sense. Where we are on it is absolutely up for debate.

dshibb

Senior Member - 7K

posted: Mar. 13, 2013 @ 6:22a

soundtechie said: I read this, and all I hear in my head is "Wah wah, wahwah wahwah wah..."

The twenty years of obligations are 20 times more than one year's obligations. Bravo sir, your grasp of addition exceeds that of 80% of second graders.

The debt is important - we see this because the "fiscal cliff" is now reality, and being included in all budgets going forward, and the stock market has responded by going *up*. a tighter budget increases people's confidence in the dollar, which makes it easier to borrow in the long term, which yields sunshine and rainbows, and then we all get ice cream for dessert.

Bold: Yeah no $hit, right! The combined value of off balance sheet of excess liabilities isn't 20 years of entitlement spending in excess of the payroll tax, instead it's the accumulated total of deficits(spending minus taxation) over the next 20 years discounted back to present value using an estimate of GDP growth for your discount rate. That numbers adds up to a lot, but it sure as $hit doesn't add up to $222 trillion.

It's probably around $20 trillion. Off balance sheet excess liability of $20 trillion is a big number when added to our current debt total hence why the US government will eventually be restructuring a lot of those social obligations the author writes about one way or another.

JTausTX

Senior Member

posted: Mar. 13, 2013 @ 8:28p

calvinandhobbes said: It's easy to make 200+ trillion dollars scary (a number that is a sum of decades of spending estimates) when you don't put it in contrast to decades of tax revenues. There are some points to be had from the editorial, but for the most part, I'm not overly impressed. It's funny how people dismiss the idea of the Laffer Curve (ie, the idea that lowering taxes can raise revenue) rather than arguing where on the curve we are. The curve is absolute common sense. Where we are on it is absolutely up for debate.

Funny how all the doom-and-gloom types make this mistake - pull some number for projected future debts or deficits without giving any figures for revenue.

Listen OP - think about deficit spending in this way... and this is the way Krugman looks at it - would you spend $10 today to get $20 next week?

I'm not saying the government would properly spend the money, and Krugman ignores some realities of how govt works, but that's the idea.

LordB

Senior Member - 2K

posted: Mar. 13, 2013 @ 9:03p

neophyte said: Sorry, I know it's a blog-like post, but I enjoyed the article By Laurence Kotlikoff and just must share

You saying you know it doesn't belong on the forum doesn't make you posting it any better. If anything it makes it worse since you know it doesn't belong.

Also congrats on using the copy/paste button... maybe in the future you will learn to give a summary and explain what you feel this article supports and why it is relevant to FWF rather than throwing other peoples text at us.

dshibb

Senior Member - 7K

posted: Mar. 13, 2013 @ 9:26p

JTausTX said: calvinandhobbes said: It's easy to make 200+ trillion dollars scary (a number that is a sum of decades of spending estimates) when you don't put it in contrast to decades of tax revenues. There are some points to be had from the editorial, but for the most part, I'm not overly impressed. It's funny how people dismiss the idea of the Laffer Curve (ie, the idea that lowering taxes can raise revenue) rather than arguing where on the curve we are. The curve is absolute common sense. Where we are on it is absolutely up for debate.

Funny how all the doom-and-gloom types make this mistake - pull some number for projected future debts or deficits without giving any figures for revenue.

Listen OP - think about deficit spending in this way... and this is the way Krugman looks at it - would you spend $10 today to get $20 next week?

I'm not saying the government would properly spend the money, and Krugman ignores some realities of how govt works, but that's the idea.

That presumes governments are not only efficient at generating returns on investment, but also more efficient than the private sector.

I don't know any sane person who believes that.

NorthStar2020

Serene Member

posted: Mar. 13, 2013 @ 11:31p

dshibb said: That presumes governments are not only efficient at generating returns on investment, but also more efficient than the private sector.

I don't know any sane person who believes that.

Then why does the govt get involved in military, why not private sector take over the reins of military? This argument about the role of govt has been going since Hamilton and Jefferson dueled it out.

dshibb

Senior Member - 7K

posted: Mar. 14, 2013 @ 1:49a

NorthStar2020 said: dshibb said: That presumes governments are not only efficient at generating returns on investment, but also more efficient than the private sector.

I don't know any sane person who believes that.

Then why does the govt get involved in military, why not private sector take over the reins of military? This argument about the role of govt has been going since Hamilton and Jefferson dueled it out.

Well in case you haven't realized a lot of the operational activities of the military have been outsourced to private firms. The companies came in and bid the cost down a lot lower than what was budgeted for the same expenses. Also if you ask people in the military it usually results in a good increase in quality as well. For example if I'm not mistaken Halliburton now handles a lot of food delivery, set up, and cooking for the military and those in the armed services claim that the difference in quality of the food greatly improved all the while saving the US government and taxpayers money.

The reason why the military hasn't traditionally been taken over by the private sector is because you often can't pay a group of mercenaries enough to want to stay in the front lines when they can just say f@ck this and d!tch when things get dicey. It doesn't mean that we haven't outsourced things like bodyguard work and saved money.

JTausTX

Senior Member

posted: Mar. 16, 2013 @ 10:35a

dshibb said: JTausTX said: calvinandhobbes said: It's easy to make 200+ trillion dollars scary (a number that is a sum of decades of spending estimates) when you don't put it in contrast to decades of tax revenues. There are some points to be had from the editorial, but for the most part, I'm not overly impressed. It's funny how people dismiss the idea of the Laffer Curve (ie, the idea that lowering taxes can raise revenue) rather than arguing where on the curve we are. The curve is absolute common sense. Where we are on it is absolutely up for debate.

Funny how all the doom-and-gloom types make this mistake - pull some number for projected future debts or deficits without giving any figures for revenue.

Listen OP - think about deficit spending in this way... and this is the way Krugman looks at it - would you spend $10 today to get $20 next week?

I'm not saying the government would properly spend the money, and Krugman ignores some realities of how govt works, but that's the idea.

That presumes governments are not only efficient at generating returns on investment, but also more efficient than the private sector.

I don't know any sane person who believes that.

Healthcare? Non-commercial R&D? Infrastructure development (since the actual building is largely contracted anyway)? Bringing utilities to marginal revenue areas? National defense? Enforcement of federal law? All areas where the government is far better-suited than any private entity (healthcare is debatable, I realize)

dshibb

Senior Member - 7K

posted: Mar. 16, 2013 @ 1:37p

JTausTX said: dshibb said: JTausTX said: calvinandhobbes said: It's easy to make 200+ trillion dollars scary (a number that is a sum of decades of spending estimates) when you don't put it in contrast to decades of tax revenues. There are some points to be had from the editorial, but for the most part, I'm not overly impressed. It's funny how people dismiss the idea of the Laffer Curve (ie, the idea that lowering taxes can raise revenue) rather than arguing where on the curve we are. The curve is absolute common sense. Where we are on it is absolutely up for debate.

Funny how all the doom-and-gloom types make this mistake - pull some number for projected future debts or deficits without giving any figures for revenue.

Listen OP - think about deficit spending in this way... and this is the way Krugman looks at it - would you spend $10 today to get $20 next week?

I'm not saying the government would properly spend the money, and Krugman ignores some realities of how govt works, but that's the idea.

That presumes governments are not only efficient at generating returns on investment, but also more efficient than the private sector.

I don't know any sane person who believes that.

Healthcare? Non-commercial R&D? Infrastructure development (since the actual building is largely contracted anyway)? Bringing utilities to marginal revenue areas? National defense? Enforcement of federal law? All areas where the government is far better-suited than any private entity (healthcare is debatable, I realize)

None of what you just said has anything to do with efficiency.

You want to build a road, okay! Take average time saved(in hours) per year for each driver times total drivers that use it times average hourly wage of individuals who use it. Add to that estimate of miles saved for all those people during one year and divide that by average mpg and multiply by (average gas price plus average car depreciation per that set of miles). Now compare this to the cost of building it and the ongoing maintenance of keeping it up.

I can guarantee you that financial calculations about efficiency are not being done when it comes to infrastructure. Instead it's all about frontloading the GDP formula so that they can report a higher number(with how it's calculated) when the increase is largely meaningless. Take a look at China today. If governments were efficient at allocating capital you wouldn't have a bunch of highways nobody drives on, high rises nobody works or lives in, malls nobody shops in, airports no one flies out of or into, high speed railways nobody gets on, and entire cities that are vacant.

Do you actually think that that the government is good at generating an adequate return on it's R&D expenditures? If you believe that you're a moron! The amount of money the US government spends on R&D and the insanely low amounts of valuable research they get out of that relative to private sector R&D expenditure is astonishing.

And I've driven on entire Highway's paid for by Obama's stimulus that had absolutely no business being built. There is no possible way that they save enough drivers time and money to even justify the ongoing maintenance costs of these roads let alone the build cost.

I also love how you basically admit inefficiency with "Bringing utilities to marginal revenue areas". Maybe you should question whether or not that actually makes sense. If it's going to be a net loss than maybe those places shouldn't have top end new utilities infrastructure built out to them and maybe they should either be responsible for paying enough to get those utilities out to them or it shouldn't happen. I don't know just a thought!

So that is efficiency and the government is anything, but. If you want to say that it's impossible for the private sector to do certain things like the police, I'm inclined to agree with you. But efficient is not something the government should ever be called.

JTausTX

Senior Member

posted: Mar. 18, 2013 @ 9:36p

I see your point.

However, I think the great advantage of government is that they aren't obligated to be efficient. Is it economically efficient to run fiber or a new highway into very low-population zones? No, probably not, but it's part of serving the citizenry. Same with R&D - a lot of things don't have an acceptable timeframe to be profitable for it to make sense for a company to work on them, but the government is disposed to be more far-sighted. Things like super-computing, new manmade materials, some areas of medicine, etc.

BTW, regarding rural electrification - honestly, I don't care how much it costs. Public utilities have a duty to serve those who live in their area. The quality of life of millions of Americans was improved immensely by these programs, and that justifies the price in my mind. People who live there are usually dirt poor. By saying they should pay for it themselves, you're basically saying that they shouldn't have it. And it's pretty much just electricity, since (at least in the rural area where I grew up) things like phone lines were laid by co-ops after the munis electrified everything. Water and sewage obviously not provided in the deep country.

dshibb

Senior Member - 7K

posted: Mar. 18, 2013 @ 9:57p

JTausTX said: I see your point.

However, I think the great advantage of government is that they aren't obligated to be efficient. Is it economically efficient to run fiber or a new highway into very low-population zones? No, probably not, but it's part of serving the citizenry. Same with R&D - a lot of things don't have an acceptable timeframe to be profitable for it to make sense for a company to work on them, but the government is disposed to be more far-sighted. Things like super-computing, new manmade materials, some areas of medicine, etc.

BTW, regarding rural electrification - honestly, I don't care how much it costs. Public utilities have a duty to serve those who live in their area. The quality of life of millions of Americans was improved immensely by these programs, and that justifies the price in my mind. People who live there are usually dirt poor. By saying they should pay for it themselves, you're basically saying that they shouldn't have it. And it's pretty much just electricity, since (at least in the rural area where I grew up) things like phone lines were laid by co-ops after the munis electrified everything. Water and sewage obviously not provided in the deep country.

If they want to grow GDP and make their population wealthier they're subject to the same laws of efficiency as everybody else. A highway that is built that no one drives on is just a net drag on the government balance sheet and a net drag on the economy as a whole.

R&D that can't be used in the near term just represents wasted money until it can be used. The private sector is good at making those investments when they are likely to return something in the near future. So it's not a question of whether or not they'll be made it's only a question of whether or not it's a good thing to do it so far ahead of it's economic viability that it lowers the return on investment. I think most would agree that investing well ahead of economic viability is just wasted capital.

Really you don't care how much it costs? If that is the case then might as well run fiber to every square foot of the country because it's 'our duty' regardless if it's economic output is less than the economic cost of building it out. That notion is preposterous!

The quality of life of Americans are best improved by focusing on the investments that benefit the most people per unit of cost(the market does this naturally because if you don't succeed in providing something that people see as at least a marginal improvement in their lives then you wont get revenue and you're business will go under). I don't get how you can suggest the opposite by having them invest in areas that benefit the least amount of people per unit of cost. That just seems dumb!

Maybe what is best for those 'dirt poor' people is for them to move to a place that can pay them an economic wage not subsidize their stay in a depressed hell hole that will never be able to afford them a decent living unless it was provided by the expenditure of other peoples money. So I actually think it's your proposal of trying to keep them in a place where they'll remain poor that is doing them the biggest disservice.

JTausTX

Senior Member

posted: Mar. 18, 2013 @ 10:29p

dshibb said: JTausTX said: I see your point.

However, I think the great advantage of government is that they aren't obligated to be efficient. Is it economically efficient to run fiber or a new highway into very low-population zones? No, probably not, but it's part of serving the citizenry. Same with R&D - a lot of things don't have an acceptable timeframe to be profitable for it to make sense for a company to work on them, but the government is disposed to be more far-sighted. Things like super-computing, new manmade materials, some areas of medicine, etc.

BTW, regarding rural electrification - honestly, I don't care how much it costs. Public utilities have a duty to serve those who live in their area. The quality of life of millions of Americans was improved immensely by these programs, and that justifies the price in my mind. People who live there are usually dirt poor. By saying they should pay for it themselves, you're basically saying that they shouldn't have it. And it's pretty much just electricity, since (at least in the rural area where I grew up) things like phone lines were laid by co-ops after the munis electrified everything. Water and sewage obviously not provided in the deep country.

If they want to grow GDP and make their population wealthier they're subject to the same laws of efficiency as everybody else. A highway that is built that no one drives on is just a net drag on the government balance sheet and a net drag on the economy as a whole.

R&D that can't be used in the near term just represents wasted money until it can be used. The private sector is good at making those investments when they are likely to return something in the near future. So it's not a question of whether or not they'll be made it's only a question of whether or not it's a good thing to do it so far ahead of it's economic viability that it lowers the return on investment. I think most would agree that investing well ahead of economic viability is just wasted capital.

Really you don't care how much it costs? If that is the case then might as well run fiber to every square foot of the country because it's 'our duty' regardless if it's economic output is less than the economic cost of building it out. That notion is preposterous!

The quality of life of Americans are best improved by focusing on the investments that benefit the most people per unit of cost(the market does this naturally because if you don't succeed in providing something that people see as at least a marginal improvement in their lives then you wont get revenue and you're business will go under). I don't get how you can suggest the opposite by having them invest in areas that benefit the least amount of people per unit of cost. That just seems dumb!

Maybe what is best for those 'dirt poor' people is for them to move to a place that can pay them an economic wage not subsidize their stay in a depressed hell hole that will never be able to afford them a decent living unless it was provided by the expenditure of other peoples money. So I actually think it's your proposal of trying to keep them in a place where they'll remain poor that is doing them the biggest disservice.

Please don't reply using a strawman. I am not talking about laying millions of miles of fiber to nowhere or highways that nobody uses. I am talking about bringing basic utilities and modes of transport to people in remote areas where it is not profitable for a company to do the legwork. I believe this is part of the duty of a government to its citizens and taxpayers.

Government sponsors research that is more far-sighted than commercial research. Some things can't be accomplished in a one-year or five-year timeframe and may need groundwork done before they can begin with more advanced research. Government is ideally positioned to provide this by A. directly researching these things, in whatever field (medicine, biology, electronics, engineering, energy) and B. providing funds for other researchers to do it. An example might be dealing with peak oil. By the time it's profitable for energy companies to begin serious research into alternatives, the timeline might be so truncated that they won't be able to provide a good solution. The government can research this now - for example, ways to manufacture cheaper and more efficient solar panels - so that this information will be available by the time it's needed.

Also, the "they should just move" response is typical of somebody who hasn't experienced this first or second-hand. My family was too poor during the Dust Bowl to even leave the Panhandle. Sometimes people do not have the option of moving, so please do not refer to this as some panacea to the problems in their lives.

dshibb

Senior Member - 7K

posted: Mar. 18, 2013 @ 11:05p

JTausTX said: dshibb said: JTausTX said: I see your point.

However, I think the great advantage of government is that they aren't obligated to be efficient. Is it economically efficient to run fiber or a new highway into very low-population zones? No, probably not, but it's part of serving the citizenry. Same with R&D - a lot of things don't have an acceptable timeframe to be profitable for it to make sense for a company to work on them, but the government is disposed to be more far-sighted. Things like super-computing, new manmade materials, some areas of medicine, etc.

BTW, regarding rural electrification - honestly, I don't care how much it costs. Public utilities have a duty to serve those who live in their area. The quality of life of millions of Americans was improved immensely by these programs, and that justifies the price in my mind. People who live there are usually dirt poor. By saying they should pay for it themselves, you're basically saying that they shouldn't have it. And it's pretty much just electricity, since (at least in the rural area where I grew up) things like phone lines were laid by co-ops after the munis electrified everything. Water and sewage obviously not provided in the deep country.

If they want to grow GDP and make their population wealthier they're subject to the same laws of efficiency as everybody else. A highway that is built that no one drives on is just a net drag on the government balance sheet and a net drag on the economy as a whole.

R&D that can't be used in the near term just represents wasted money until it can be used. The private sector is good at making those investments when they are likely to return something in the near future. So it's not a question of whether or not they'll be made it's only a question of whether or not it's a good thing to do it so far ahead of it's economic viability that it lowers the return on investment. I think most would agree that investing well ahead of economic viability is just wasted capital.

Really you don't care how much it costs? If that is the case then might as well run fiber to every square foot of the country because it's 'our duty' regardless if it's economic output is less than the economic cost of building it out. That notion is preposterous!

The quality of life of Americans are best improved by focusing on the investments that benefit the most people per unit of cost(the market does this naturally because if you don't succeed in providing something that people see as at least a marginal improvement in their lives then you wont get revenue and you're business will go under). I don't get how you can suggest the opposite by having them invest in areas that benefit the least amount of people per unit of cost. That just seems dumb!

Maybe what is best for those 'dirt poor' people is for them to move to a place that can pay them an economic wage not subsidize their stay in a depressed hell hole that will never be able to afford them a decent living unless it was provided by the expenditure of other peoples money. So I actually think it's your proposal of trying to keep them in a place where they'll remain poor that is doing them the biggest disservice.

Please don't reply using a strawman. I am not talking about laying millions of miles of fiber to nowhere or highways that nobody uses. I am talking about bringing basic utilities and modes of transport to people in remote areas where it is not profitable for a company to do the legwork. I believe this is part of the duty of a government to its citizens and taxpayers.

Government sponsors research that is more far-sighted than commercial research. Some things can't be accomplished in a one-year or five-year timeframe and may need groundwork done before they can begin with more advanced research. Government is ideally positioned to provide this by A. directly researching these things, in whatever field (medicine, biology, electronics, engineering, energy) and B. providing funds for other researchers to do it. An example might be dealing with peak oil. By the time it's profitable for energy companies to begin serious research into alternatives, the timeline might be so truncated that they won't be able to provide a good solution. The government can research this now - for example, ways to manufacture cheaper and more efficient solar panels - so that this information will be available by the time it's needed.

Also, the "they should just move" response is typical of somebody who hasn't experienced this first or second-hand. My family was too poor during the Dust Bowl to even leave the Panhandle. Sometimes people do not have the option of moving, so please do not refer to this as some panacea to the problems in their lives.

1) It's not a straw man when you advocate the notion that it is the duty of the government to do a particular thing. Now what you might mean to say is that the US government has a duty to do x as long as the losses don't exceed y, but it's you who has to define that line for my supposed 'straw man' to no longer be applicable to the conversation.

2) The latent assumption that while you probably wont acknowledge but underpins your entire argument is that capital is unlimited. If you believe that capital is unlimited than the government can spend any amount of money on non productive endeavors and they can deploy capital to any endeavor that even produces a marginal return on investment. But you and me both should know that capital is not unlimited and that creates the situation where capital should flow to the places that it will benefit the most people the most(which can be measured by revenue gained or cost saved per unit of capital) which is far superior to all parties involved than the expenditure of capital on investments that are chosen for other reasons that have nothing to do with capital's productive use.

3) If several milestones within that technology have to be achieved in order for a technology to be available when the market can support it the private sector usually jumps into it earlier. Take for example ASIMO in Japan or the Google driverless car which represents huge game changers for the marketplace, but substantial progress has to be made over a longer time period in order for their commercial use. An example of a dumb investment in R&D is the investment in for example solar or wind technology that requires substantial transmission line expenditure to carry the output from a non populated areas maybe in Arizona or farm country United States for only marginal changes in electrical production. At least 10 other breakthroughs elsewhere need to occur before it's even economically viable(if ever) yet we piss the money down the drain for something that isn't even close to as sure of a bet as a driverless car.

4) The peak oil bull$hit is just bull$hit. We find more oil reserves each year than the world consumes. The US is on track to become a net oil exporter, and all the while we've been in that huge revolution that everybody spoke of, but nobody bothered to notice. Over the last several years compressed natural gas has basically taken over a huge portion of the semi fuel market, and growing rapidly. The quantity of compressed natural gas stations in the US has exploded almost overnight. There is huge quantities of natural gas in the world and it's extremely cheap, and clean. But it wasn't electrical cars so certain people didn't notice and all that capital the government spent on electrical cars and alternative energies were wasted.

5) So let me understand something correctly here. Let's operate off your assumption here that they 'can't afford to move'(which is largely idiotic given the extremely low cost if any of finding someone to give you a ride if need be even out of charity), but we'll operate off of that assumption. You're telling me that it is better for the government to subsidize only the utilities of those people stuck in that poverty on an ongoing basis than it is to subsidize their move out of there? You're going to tell me that it's a more productive use of capital and better for those poor families to stay in that poverty only because they got power lines built to them instead of paying for them to find a better future elsewhere?...as if to say that electricity makes up for the fact that you're destitute and poor? Because that just makes so much sense(rolls eyes).

emcdemc

Member

posted: Mar. 19, 2013 @ 3:57a

dshibb said: JTausTX said: calvinandhobbes said: It's easy to make 200+ trillion dollars scary (a number that is a sum of decades of spending estimates) when you don't put it in contrast to decades of tax revenues. There are some points to be had from the editorial, but for the most part, I'm not overly impressed. It's funny how people dismiss the idea of the Laffer Curve (ie, the idea that lowering taxes can raise revenue) rather than arguing where on the curve we are. The curve is absolute common sense. Where we are on it is absolutely up for debate.

Funny how all the doom-and-gloom types make this mistake - pull some number for projected future debts or deficits without giving any figures for revenue.

Listen OP - think about deficit spending in this way... and this is the way Krugman looks at it - would you spend $10 today to get $20 next week?

I'm not saying the government would properly spend the money, and Krugman ignores some realities of how govt works, but that's the idea.

That presumes governments are not only efficient at generating returns on investment, but also more efficient than the private sector.

I don't know any sane person who believes that.

The private sector doesn't make long-term investments. Only the wealthy would be educated without government. It's a long term investment however, and there is no incentive for a private company to invest in kids that cannot work for 16 years. The U.S. would devolve into an aristocracy but that is happening anyways due to liberalized campaign finance laws and technological efficiencies.

dshibb

Senior Member - 7K

posted: Mar. 19, 2013 @ 5:49a

emcdemc said: dshibb said: JTausTX said: calvinandhobbes said: It's easy to make 200+ trillion dollars scary (a number that is a sum of decades of spending estimates) when you don't put it in contrast to decades of tax revenues. There are some points to be had from the editorial, but for the most part, I'm not overly impressed. It's funny how people dismiss the idea of the Laffer Curve (ie, the idea that lowering taxes can raise revenue) rather than arguing where on the curve we are. The curve is absolute common sense. Where we are on it is absolutely up for debate.

Funny how all the doom-and-gloom types make this mistake - pull some number for projected future debts or deficits without giving any figures for revenue.

Listen OP - think about deficit spending in this way... and this is the way Krugman looks at it - would you spend $10 today to get $20 next week?

I'm not saying the government would properly spend the money, and Krugman ignores some realities of how govt works, but that's the idea.

That presumes governments are not only efficient at generating returns on investment, but also more efficient than the private sector.

I don't know any sane person who believes that.

The private sector doesn't make long-term investments. Only the wealthy would be educated without government. It's a long term investment however, and there is no incentive for a private company to invest in kids that cannot work for 16 years. The U.S. would devolve into an aristocracy but that is happening anyways due to liberalized campaign finance laws and technological efficiencies.

Oh great a crazy ill informed ideologue who's going to let us in on his crazy theories and predictions for what the world would be like if a, b, or c happened with no other explanation than what seems right in his crazy mind.

The private sector makes long term investments all of the time. Ever heard of the pharmaceutical industry? If they were incapable of long term investments that industry couldn't exist today.

Only idiots who don't understand anything about economics believe that technological innovation leads to higher aggregate unemployment and reduced wages just like the hicks worried about foreigners because 'they tic err jobs'.

TravelerMSY

Senior Member - 5K

posted: Mar. 19, 2013 @ 11:58p

I'll offer up the orphan drug act as an example of government stepping in to bankroll research and production of life-saving drugs for rare diseases that would have been unprofitable for the private sector alone. Should the government have just let those people die? It would have been cheaper.

dshibb

Senior Member - 7K

posted: Mar. 20, 2013 @ 12:25a

TravelerMSY said: I'll offer up the orphan drug act as an example of government stepping in to bankroll research and production of life-saving drugs for rare diseases that would have been unprofitable for the private sector alone. Should the government have just let those people die? It would have been cheaper.

This is now transitioning from a subject of efficiency and 'investing $10 today to get $20 tomorrow' to a conversation about morality.

No where in my comments was I advocating for an absence of government help. I did however talk about the stupidity of the notion that governments are efficient at allocating capital and you should have also noticed a little bit of me pointing out that if the government is going to do something just to help people that it better be efficient in getting the most benefit for the least cost(paying to get people out of an extremely impoverished rural area vs. subsidizing a bunch of utilities and other goods/services/benefits for them to stay there).

I will say that usually rare diseases are still profitable enough to pharmaceutical firms to engage in the R&D because they'll just get higher dollar amounts for the drugs instead of more volume to justify the large R&D expenditures.

bigmammal

New Member

posted: Mar. 20, 2013 @ 9:41p

TravelerMSY said: I'll offer up the orphan drug act as an example of government stepping in to bankroll research and production of life-saving drugs for rare diseases that would have been unprofitable for the private sector alone. Should the government have just let those people die? It would have been cheaper.I'm all for government waste, however, some people may argue there may be a better, more efficient use of the same money, like researching other diseases, producing faster results.

JTausTX

Senior Member

posted: Mar. 21, 2013 @ 5:46p

Dshibb - I see that our argument was also filtering into the morality area you mention, so I'll drop most points, but I did want to make another point about rural electrification and long-term investments.

Most of the area around my family - yes, the people who were literally too poor to move (for details: 11 kids, father died of a sudden illness leaving the mother and two oldest sisters to support the family, which was done through a combination of waitressing, sewing, and small-time secretarial work, none of which paid for hardly anything, and at that time there were no highways in the region and they couldn't afford tickets on the trains) - was electrified in the 40s and 50s. At that time, the region was still recovering from the Dust Bowl. Electrification made it possible to irrigate on a large scale and the infrastructure that was built there - again, in a VERY marginal population area - made it possible for oil and gas companies to move in. Because the government spent the money to bring infrastructure there, it's now one of the wealthier areas in the state due to agribusiness and oil & gas.

dshibb

Senior Member - 7K

posted: Mar. 21, 2013 @ 6:13p

JTausTX said: Electrification made it possible to irrigate on a large scale and the infrastructure that was built there - again, in a VERY marginal population area - made it possible for oil and gas companies to move in. Because the government spent the money to bring infrastructure there, it's now one of the wealthier areas in the state due to agribusiness and oil & gas.

You don't think that Oil and Gas wouldn't have thrown up investment commitments in exchange for electrification once they had discoveries there and enough profit margin? If you have oil and gas there is no problem getting a utilities company to make the investment. They can do math after all.

Same goes for a rise in food prices causing the financial attractiveness of farming to increase. If a utilities company can see that even a few highly profitable farms can support the cost of investment it's pretty easy for them to marshal the resources to build out to that location.

So I would take issue with the notion that government turned the area into a productive space and instead argue that if the land had promise it would have happened anyway. To argue that it wouldn't have is to argue that utilities companies aren't rational, land that currently doesn't have utilities is always worth zero, and that the private sector is incapable of marshaling capital. All 3 of those are pretty flawed arguments.

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